Which Is Better, Term or Whole Life Insurance?

Which Is Better, Term or Whole Life Insurance?

After you have determined the appropriate amount of life insurance, you must also determine which type is best for you, both in the short run and in the long run. This decision will have a huge impact on your financial well-being throughout your life. Term insurance (temporary insurance) has the lowest initial premium but the highest long-term cost because premiums increase over time and your beneficiaries are highly unlikely to ever collect any payout from it. Premium payment terms are very inflexible and you never receive any of your premiums back. Whole life insurance (permanent insurance) has the highest initial premium but the lowest long-term cost because premiums never increase, and your beneficiaries are guaranteed to receive a much higher payout than what you put into it, as long as the policy stays in force. Furthermore, whole life insurance provides living benefits to you because it builds liquid cash that you can access at any time for any purpose. In the long run, the cash available for you to spend while you are alive is highly likely to be worth much more than what you put into it. Since it builds accessible cash, whole life premium payments count towards your 20% savings goal. Thus, you can accomplish both protection and asset building objectives at once. The optimum solution would be to own some of each—a prudent amount of whole life insurance depending on how much you are currently allocating to savings, and the rest in term insurance up to your full human life value. Remember that the amount is initially more important than the type. If current cash flow...
Life Insurance

Life Insurance

Are you worth more dead than alive? How much is the right amount of life insurance? I have found that although most people realize the importance of life insurance, they do not give much thought to how much is the right amount for their situation. Most people also assume that they could purchase as much life insurance as they want. You may be surprised to learn that insurance companies actually will not allow you to be worth more dead than alive. No asset can be insured for more than its current economic value, whether it is a car, a house, or a human life. The amount of life insurance for which you can qualify is based on your current age, annual income, assets, and debts. This is called your “human life value,” and it represents the economic loss which those who are financially dependent upon you would suffer if you were to pass away, such as family members, business partners, or creditors. Similar calculations based on age and income are also used by the courts to determine appropriate wrongful death awards, and were used by the administrators of the September 11th Victim Compensation Fund to determine how much should be paid to the family members of those who had been killed in the terrorist attacks of September 11, 2001. Of course the economic loss is only a tiny sliver of the total loss suffered when a human life is lost. The value of a human spirit could never be fully replaced. Each person’s talents, love, experience, wisdom, example, creativity, future capacity to give, and service to society are irreplaceable. That...